Please ensure Javascript is enabled for purposes of website accessibility

Is J.C. Penney Company, Inc. a Buy?

By Daniel B. Kline – Apr 7, 2018 at 3:35PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The retailer has shown some positive signs.

J.C. Penney (JCPN.Q) has been a confusing story in the changing retail marketplace. The company has not yet fully turned the corner like Best Buy, nor does it appear doomed like Sears (SHLDQ).

Instead, J.C. Penney has shown signs of success and finding a model that will work for the long term. In part, the retailer has been capitalizing on Sears' failures, adding appliances and home services in markets its rival has abandoned. It has also revamped its merchandise, specifically women's apparel, added more store-within-a-store concepts to make its locations shopping destinations, and added toy departments to all of its stores.

These changes have been working to a point, but J.C. Penney's success is certainly not guaranteed. This could become a major success story, or the retailer could become another victim of the retail crisis.

The exterior of a J.C. Penney store.

J.C. Penney has been making major changes in its stores. Image source: J.C. Penney.

How is J.C. Penney doing?

In 2016, J.C. Penney had momentum heading into the holiday season, then saw its year fall apart when it posted poor holiday numbers. Things were different in 2017, and the holiday season capped a strong year.

J.C. Penney delivered a 2.6% comparable-store sales increase in the fourth quarter and a 0.1% gain for the full year. The company also saw net sales increase by 1.8% in the fourth quarter.

Those are modest gains, but they present solid evidence that the chain's turnaround efforts are working. CEO Marvin R. Ellison certainly expressed that he believed that to be the case in his remarks in the fourth-quarter earnings release. 

For 2017, we improved adjusted earnings per share by 175%, reduced our outstanding debt levels by over $600 million and generated over $200 million of free cash flow," he said. "During the fourth quarter, we delivered our strongest positive sales comps and achieved our largest gross margin improvement for the year."

Is J.C. Penney a buy?

Under Ellison's leadership, J.C. Penney has made real changes, and that has worked. While Sears' CEO Eddie Lampert has talked about change, he hasn't succeeded with most of the moves he's made. That's not the case at J.C Penney, where revised categories jewelry, home, Sephora, footwear and handbags, and salon were the top-performing divisions in the fourth quarter.

"In 2018, we will intensify our market share efforts in appliances, mattresses, and furniture, while continuing to take steps to modernize our apparel assortment and omnichannel," Ellison said. "Our strategy and plan is clear and consistent, and we remain focused on two critical factors -- to operate the business for growth and deliver profitable earnings." 

So far, that has been a blueprint for success, and it's a reason to buy shares in the company. Ellison has shown that he can take a concept like adding appliances, test it, evaluate it, then roll it out to more stores, or kill it depending upon the results.

J.C. Penney is by no means a sure thing, and falling mall traffic could be a drag on the company that it can't overcome. However, that does not seem to be what's happening, and the retailer should build on 2017 as it captures customers freed up by Sears's slow death and the closing of Toys R Us.


Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sears Holdings Corporation Stock Quote
Sears Holdings Corporation
SHLDQ
J. C. Penney Company, Inc. Stock Quote
J. C. Penney Company, Inc.
JCPN.Q
Best Buy Co., Inc. Stock Quote
Best Buy Co., Inc.
BBY
$65.08 (-3.50%) $-2.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
107%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.